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RBI guidelines on Payment Aggregators GS: 3 "EMPOWER IAS"

RBI guidelines on Payment Aggregators GS: 3 "EMPOWER IAS"

In news:

  • The Reserve Bank of India released guidelines for regulating payment aggregators (PAs) and payment gateways (PGs), nearly six months after it first proposed regulating these entities in a discussion paper.

 

Who are payment aggregators?

  • These are players who integrate with e-commerce companies and connect them with banks. They receive payments on behalf of these companies and transfer the money to their accounts.

 

Payment Aggregators and Payment Gateways

  • Payment Aggregators facilitate e-commerce sites and merchants in accepting payment instruments from the customers for completion of their payment obligations without the need for merchants to create a separate payment integration system of their own. Example: Billdesk.
  • Payment Gateways are entities that provide technology infrastructure to route and facilitate processing of an online payment transaction without any involvement in handling of funds. PGs in India mainly include banks.
  • A Payment Gateway allows the merchants to deal in a specific payment option put on the portal, whereas a Payment Aggregator allows one to have multitudes of options for payment. Thus, a Payment Aggregator covers a payment gateway in its ambit.

 

What are the new guidelines?

The new guidelines say that-

  • A payment aggregator (entities that facilitate e-commerce sites and merchants to accept various payment instruments) should be a company incorporated in India under the Companies Act, 1956 / 2013.
  • Non-bank entities offering payment aggregator services will have to apply for authorisation on or before June 30, 2021.
  • E-commerce marketplaces providing payment aggregator services will have to be separated from the marketplace business and they will have to apply for authorisation on or before June 30, 2021.
  • Pas existing today will have to achieve a net worth of ₹15 crore by March 31, 2021 and a net worth of ₹25 crore by the end of third financial year, which means or before March 31, 2023.
  • The net-worth of ₹25 crore shall be maintained at all times thereafter.

 

What is the significance of the move?

  • Extending RBI’s regulatory oversight is a welcome move.
  • PAs (like Bill Desk, CCAvenue, etc.) facilitate online payments and they play a crucial role in the digital payments ecosystem.
  • So, the RBI guidelines will be instrumental in ensuring that only serious players with robust governance framework remain in the market.

 

Capital Requirement:

  • Existing PAs have to achieve a net worth of ₹15 crore by 31st March, 2021 and a net worth of ₹25 crore on or before 31st March, 2023. The net worth of ₹25 crore has to be maintained at all times thereafter.
  • New PAs should have a minimum net worth of ₹15 crore at the time of application for authorisation and have to attain a net worth of ₹25 crore by the end of the third financial year of the grant of authorisation. The net worth of ₹25 crore has to be maintained at all times thereafter.

 

Disclosure Requirements:

  • PAs need to disclose comprehensive information regarding merchant policies, customer grievances, privacy policy and other terms and conditions on the website and / or their mobile application.
  • They need to undertake background and antecedent checks of the merchants to ensure that such merchants do not have any malafide intention of duping customers, and do not sell fake / counterfeit / prohibited products.

 

 

 

What are the issues that require further clarity?

  • Account with only one SCB - The guidelines require PGs to maintain an escrow account with only one State Cooperative Bank (SCB).
  • It may be worthwhile to reconsider this provision and enable more than one account, in light of Yes Bank debacle.
  • Due to restrictions imposed by the RBI on Yes Bank, the nodal accounts maintained by payment intermediaries with it could not be operated.
  • This resulted in disruption of services by fintech companies, especially related to paying out merchants.
  • Background check - In addition to undertaking KYC for on-boarding merchants, PAs have been mandated to undertake background and antecedent check of the merchants.
  • This is to ensure that such merchants do not have any mala fide intention of duping consumers or selling counterfeit products.
  • Mandating PAs to address the regulator’s concern regarding the quality of the merchant and its goods appears to be an onerous burden for a PA.
  • Grievance redressal - The PA is mandated to maintain customer grievance redressal mechanisms in line with RBI’s prescriptions on turnaround time for resolution of failed transactions.
  • Unlike the regulatory prescriptions for prepaid payment instrument issuers, there is no requirement for PAs to report about the receipt of complaints and action taken status thereon to the RBI.
  • Preparation of plans - The impact of the Yes Bank moratorium on the fintech sector clearly indicates the relevance of business continuity plans.
  • Accordingly, it may have been useful for guidelines to refer to preparation of plans by PAs.